A growing trend to add Real Assets to a Fund’s targeted asset mix

From

Andrew Yap

Amidst an investment environment where asset class returns are forecast to be lower with greater volatility, Zenith Investment Partners has observed a greater willingness of Multi-Asset managers to incorporate non-traditional asset classes within their strategic asset allocation.

In the past, this has included unlisted assets such as private equity and debt. However more recently, Managers are adding Real Assets to the mix believing they have unique characteristics that can help to improve portfolio efficiency.

Zenith, in its Multi-Asset – Diversified sector report looks at this growing trend and finds that while Real Assets can be a welcome addition to a diversified portfolio, exposures are nuanced and not without risk.

Real Assets are attractive to managers for a number of reasons,” said Andrew Yap, Head of Multi-Asset and Australian Fixed Income at Zenith.

“They can generate strong, stable cash flows that are linked to inflation. Additionally, their earnings tend to be less cyclical than shares, offering some protection when equity markets sell-off. That said, an assessment of Real Assets requires a specialist skill set in recognition of their structural complexity and intensive nature of physical asset management.”

In Zenith’s opinion, Fund Managers need to ensure they have the right people to manage these types of investments. Furthermore, capital market assumptions need to evolve as do optimisation techniques to ensure the appropriate funding and blending of such exposures.

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